Rosemarie Smallcombe's Testimony before the State Senate Committee on Insurance, March 9th 2016

Thank you for the opportunity to speak today.  My name is Rosemarie Smallcombe.  I am a Mariposa County Supervisor, but I speak today in behalf of citizens in much of the Sierra Nevada.  The topic under consideration by your Committee – Preparing for Global Warming and the Drought – State of the Homeowners’ Insurance Market – is very important to many Californians, especially those in forested areas.

I serve on Governor Brown’s Tree Mortality Task Force and can assure you that the difficulties Mariposa citizens are encountering in obtaining insurance are shared by an increasing number of California citizens.  The Task Force is currently focused on six counties – Mariposa, Madera, Tuolumne, Fresno, Tulare and Kern – but the Boards of Supervisors of Amador and Calaveras approved disaster declarations in the last two weeks.  I have also heard similar concerns expressed in El Dorado County. 

With over 5 million trees dead in Mariposa and over 29 million in the Sierra Nevada, Mariposa has been the hardest hit county by the Tree Mortality Disaster followed by eastern Fresno, Madera and Tuolumne Counties.  The drought and increasingly warm temperatures have contributed significantly to the high rates of tree mortality.  The Western Pine and Ips Beetles – which are responsible for killing our pine trees -- are native to California, but warmer temperatures have allowed their populations to explode.   Insufficient water renders the pines unable to defend themselves.  Drought is principally responsible for the deaths of large numbers of cedars and oaks.  These high mortality rates will have adverse implications for the watersheds on which Californians depend for 60% of their water.

According to CAL FIRE data, approximately 70% of the dead trees are on federal lands and just under 30% on private lands.  However, please remember that many Sierra communities are immediately adjacent to federal, primarily Forest Service, lands.  Dead and dying trees on Forest Service lands threaten public safety and structures and also contribute to increased fire risk.  That higher fire danger, evident for several years, has been greatly exacerbated by the sharp increase in tree mortality.

Insurance companies have, of course, recognized the increasing risk and are reacting – in several cases by pulling out of the market.  The Department of Insurance is aware of that trend and sent an e-mail stating that they have “noticed a sustained uptick in consumers, legislators and the news media expressing concern about homeowners’ policies being non-renewed in high fire severity areas…”   They then encouraged brokers, agents and homeowners to become familiar with the Ca FAIR Plan.

I’ll speak primarily about the situation in Mariposa County but, as I mentioned earlier, several other counties are similarly affected.  According to insurance agents in Mariposa, insurance companies have been pulling out for some time, but at a more rapid pace in the last 3 years — Hartford, Alliance, Liberty Mutual, State Farm are no longer writing new policies.  Policies are increasingly only available from AAA though Lloyds, Scottsdale through Nationwide and the CA FAIR Plan; the CA FAIR Plan covers fire risk.  These policies are expensive, but at least AAA and Scottsdale provide complete coverage. Under the FAIR Plan, coverage for liability, theft, etc. must be obtained through wrap around policies from other companies.

The California FAIR Plan apparently recognizes that few commercial insurance companies are writing new homeowners insurance policies.  Originally conceived as the insurer of last resort, the FAIR Plan process formerly required that agents document at least 3 unsuccessful attempts to obtain insurance from commercial carriers.  2-3 months ago, the FAIR Plan ceased to require brokers and agents to document those efforts.

In this environment, it’s increasingly difficult for brokers to obtain homeowners’ insurance for clients in our area — not only for fire risk, but it also appears that liability coverage is drying up.  One agent advised that she is typically able to write homeowner policies through her brokerage firm only 1 out of 99 times.

Premiums are going up -- double, triple and in some cases quadruple what they were 3 years ago.  And policies are being cancelled because the home “is located in a wooded area” or due to similar factors.  While these increases affect everyone’s pocket books, seniors are especially hard hit because many are on fixed incomes.  

Trends in insurance are also affecting our local real estate market and will begin to affect our economies.  Homes are falling out of escrow because prospective owners can't obtain insurance in time.  Homes aren’t selling because people can’t procure insurance at prices they can afford.  Potential buyers aren’t making offers because of the esthetics and liabilities associated with dead trees.  Properties are losing value.  These trends will have economic consequences for counties. As home values fall, tax revenues will also decrease.

The effects of fire risk and tree mortality are unlikely to be resolved any time soon and are widespread.  Scientists tell us that it will take 4 to 5 years of above average rainfall to reverse the effects of the drought.  That will benefit what few trees survive, as well as immature trees.  Many areas in California are affected as well as in other Western states.

Given the wide area that is are experiencing high fire hazards, tree mortality and increasingly costly insurance coverage, we need to engage in a substantive conversation about potential solutions. 

I ask that you and other policy makers initiate a public-private conversation that would include insurance companies, mortgage companies, Realtors, local and state agencies and one or more federal agencies because of the large amount of federally owned land in our state.  Now is the time to engage in that conversation because of the --
--high likelihood of continued drought cycles and increasing temperatures;
--reduced availability of fire insurance and the resulting impacts on local economies; and
--creation of the Tree Mortality Task Force which has brought together over 90 local, state and federal agencies, as well as non-profits.

A great many people are focused on reducing fire hazards and addressing the tree mortality disaster.  Now is the time to have a substantive conversation about risk reduction and possibilities for assisting at least the most financially vulnerable members of our communities to reduce fire risk around their homes.  If we can make our properties and communities safer, it should be easier to obtain insurance.  But, that will take a collaborative effort, one in which I hope insurance companies and other institutions are willing to engage.

In the short run, an initial topic for such a dialogue might be the uneven insurance rate structure across California and the lack of dialogue on assigned rates.  Computer based models such as FireLine produce risk scores at parcel levels, but there is little transparency, no apparent regulation, and few opportunities for landowners to challenge a rating in instances where mitigation has been performed. 

Thank you for your attention and your interest in this important topic.  I look forward to continuing the conversation.